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What you Should Know about High Frequency Traders Amidst COVID-19

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They are programmed to seek out human traders and destroy. Their goal is to create panic, while capturing the pennies regular investors leave behind. They thrive on mistakes that only humans can make and they rarely lose money.

THEY are High-Frequency Traders (HFT).

They are algorithmic trading programs that are created by the brightest minds available to trade the markets at your expense. They are market makers, producing over 80% of the volume that actively trades every day.

HFT and COVID-19

The recent selling of stocks due to COVID-19 has been amplified by these predatory sell programs. Virtu Financial, one of the biggest high-speed traders in the game, said it expected $509-$519 million of trading income in the first quarter of 2020. This is the highest number since the company went public in 2015 and more than double than the previous year’s income from the same period. These traders are licking their chops and feasting on the little guys’ mistakes. 

What can a regular investor do about it? 

The critical books have been written and published, while the letters have been written to congress to no avail. HFTs are here to stay and dominate our markets.

However, there is still hope for those looking to profit in the markets. Computers leave trails of patterns that are left behind in the form of stock charts. They also can't ignore the fundamentals of a company. While computers can be unforgiving, they lay down signals for sophisticated traders to pick up and profit in a tremendous manner.

I have been watching these programs grow and become better for over 15 years. I have consistently adjusted my own personal trading year over year to beat the HFTs. When you simplify how I trade, there are 3 steps I take when hunting down HFT moves. These patterns emerge almost every day, but you must know what to look for to get the perfect entry.

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Is the Market Rigged?

How often have you owned a stock that gets pummeled with no logical explanation? This is often caused by computer-driven High-Frequency Traders (HFTs). They fire off massive amounts of short trades to drive stock prices down, then profit from the rebound. Their gains come at the expense of human investors.

The good news is that Zacks has mounted a Counterstrike to catch the best of these “manipulated price drops” as they rebound. For example, we recently closed gains of +26.56%, +24.47%, and even one for +10.00% in just 1 day.¹

Access to these trades must be limited. It closes to new investors Sunday, April 12.

See Counterstrike Stocks Now >>

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3 Steps for Hunting HFTs

The Trap

Most investors have been caught in the High Frequency Trading (HFT) trap and don't even know it. They own a stock that has reported positive earnings or news and at first the stock heads higher. But then, the stock starts to tumble. Seemingly no buyers are around and there is no support for the stock as it heads down 5%, 7% or even 10%. They then wonder to themselves:

Why is my stock going down after positive news, while the rest of the market is going up?

With no easy answer from financial media they sell, thinking that the market is smarter and must know something they don't. It makes much more sense to be on the other side of that trade when this move happens...buying the panic instead of selling into it.

But most investors have no clue what to look for. They need an appropriate set up where they can have the confidence that the trade will work.

The Setup

High Frequency Traders will often try to push stocks to technical levels such as 50 or 200-day moving averages. They then try to run stop loss orders that sit in these areas, forcing the stock lower, so they can quickly buy the stock back at discount prices. Other technical tools, as easy as trendlines and as complex as Fibonacci retracements, are also used by HFT and must be utilized.

On the fundamental side of things, the Zacks Rank does all the work. By focusing on Zacks Rank #1 (Strong Buy) stocks and #2 (Buy) stocks, we can separate the good from the bad.

When combining technical measures and the fundamentals aspect of the Zacks Rank, you create a powerful force that can lead to quick bounces and easy profits.

The Strike

Knowing when to buy is the key. Entry points are very important in this game and waiting for confirmation of levels can lead to a multiple percentage point difference in an investor's return. Usually, a stock is on my watch list for 1-5 days before I enter it or move on. After confirmation of a setup, a stop loss and target is typically set, allowing the investors to gauge risk reward of the trade.

How to Profit?

A good way to take advantage of the HFT moves is through my portfolio, Zacks Counterstrike.

In the world of computer-driven trading, volatility creates opportunity and investors can capitalize on suspicious and irrational moves if they act fast. Through the use of the Zacks Rank and my experience in watching the moves of High Frequency Traders, we can profit off the setups that High Frequency Trading creates.

We will buy beaten-down quality stocks or ETFs and also short stocks that are not fundamentally sound. When these stocks have moved our way, we will lock in gains and look for the next opportunity.

At the moment, we're holding three positions. We are getting ready to trigger trades from my watch list at any moment when entry points look most advantageous. The goal is double-digit gains in 1-4 weeks. Recently, in fact, we've closed gains of +26.56%, +24.47%, and even one for +10.00% in just 1 day.¹

Look into this portfolio today and as an added bonus you may download our Special Report, 7 Best Stocks for the Next 30 Days. These buy-and-holds are the perfect complement to Counterstrike's faster-action trades. Zacks experts reveal stocks believed to have great upside potential over the next 30 days.

Important: To maximize the profit potential of our recommendations, we must limit the number of members who have access to the Counterstrike portfolio and 7 Best Stocks for the Next 30 Days Special Report. This opportunity ends Sunday, April 12.

Wishing you great financial success,

Jeremy

Jeremy Mullin has been a professional trader for more than 14 years with specific expertise in profiting from patterns set by High-Frequency Traders. He is the editor of Zacks Counterstrike.

¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors.